Why Reliance Jio's journey won't be a smooth ride

Reliance Jio has been grabbing headlines ever since it started the commercial trial of its services in December 2015. After months of waiting it finally announced the full commercial roll-out of its LTE services on 1st Sept 2016 during its AGM (Annual General Meeting).

During the forty-five minute announcement Jio presented some highly disruptive offers including: the cheapest LTE data rates in the world; zero roaming; and free lifetime voice calling. The announcements were seen as sufficiently disruptive to wipe almost $2Bn from the value of its competitors’ shares.

The response on social media was strongly positive. Moreover, with the welcome offer (providing users unlimited services until Dec 31st 2016), it seems likely that mobile number portability (MNP) will enable rapid subscriber migration to Reliance Jio. Jio also announced that it aims to be one of the fastest ever operators to reach 100 Million subscribers; a landmark that only China Mobile has achieved until now.While clearly ambitious, initial market response to Jio suggests it might achieve that milestone even faster than China Mobile which took fourteen months. Initial reports indicate Jio has already surpassed 5 million users within its first week of launch with an activation run rate of half a million per day. Assuming no slow down in that run rate, which is plausible as it rolls the service out more widely, it is likely to achieve the target in 6-7 months. This will mean Jio will join the Chinese operators in entering the big league and push it ahead of Verizon Wireless.

From an India perspective, Bharti Airtel, with fifty-one months of LTE operations, has fewer than seven million LTE subscribers and ranks outside the top 50 worldwide in LTE subscriber rankings. Other big operators among the top 10 like AT&T, NTT Docomo, T- Mobile are unlikely to leapfrog to 100 million users anytime soon due to saturated market dynamics in their countries of operation.

However, Jio’s journey won’t be a smooth ride. The following suggests it will be more than the just numbers game:

Based on its first week of market feedback it seems like demand is outgrowing supply by a big margin. We have seen people queuing up outside Reliance Digital stores waiting for long hours before their turn and at some places even a waiting period of three to four weeks to grab a Jio SIM. In such a scenario Jio needs to bridge the demand and supply gap as soon as possible by putting more resources on the ground as it would like to make the most of this period of smooth customer acquisition. However, we believe that the real test of Jio will begin post its welcome offer.

As long as consumers are enjoying the welcome offer they are likely to ignore the few hiccups here and there in terms of call drops or lack of internet connectivity at some places. In this data-hungry world and especially a value-for-money country like India, consumers won’t mind trading quality of services with some free offers initially.

But the scrutiny of services will increase once users start paying for the services. In such a scenario Jio needs to evaluate and expand its present bandwidth and resolve some of the issues like points of interconnect with other operators. It will be tempting for Jio to focus on pure subscriber acquisition, but it needs to think long term – perhaps more than any of the incumbent operators. Planning for the long term will allow it to consolidate a strong market entry. An example is developing more deals with telcos like the recent partnership with BSNL for intra-circle roaming.

Free services will surely bring new customers on board quickly but it’s the experience which will retain them in the longer term. In a cost-competitive, prepaid market like India the tariff advantage from any operators’ point of view will never be a sustainable strategy. I am sure, competitors, if not today, will soon catch-up with Jio’s tariff, neutralizing one of its perceived advantages. Then Jio will be in a position where it needs to focus not only on adding new customers but also retaining existing customers. The latter will only come if Jio provides a seamless experience to the consumer.

Jio’s LYF branded handsets are likely to face stiff competition after the welcome offer. There’s a risk that Jio may well find it is sitting on high inventory levels post the festive season. It needs to bundle the smartphones with attractive offers even post the welcome offer as on hardware benchmark terms it will be difficult for Jio to build a strong selling proposition against more established domestic and international handset brands.

Building the ecosystem will take time. While Reliance Jio can likely bring in LTE subscribers at faster pace than any other operator, it still needs to manage growing its service ecosystem. The content and services layer needs to be curated for quality not just quantity. Seamless integration with other services will also be key in developing a strong consumer experience. Since Jio is still at the early stages it can take its time in building a robust ecosystem of apps and services rather than hurriedly trying to match it with subscriber growth.

The real test for Jio will start on January 1, 2017 and only one thing will differentiate it from the rest of the competition and that’s user experience.

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